Managing Your Money
LESSON FROM THE COUNCIL FOR ECONOMIC
EDUCATION FINANCIAL FITNESS FOR LIFE
PUBLICATION
Exercise 8.1
• Five students volunteer to participate in a call-in show activity.
• Roles :
• Budget Bob
• Dr. Penny Saver
• Connie
• Calvin
• Minnie
Questions from script
• What is disposable income?
• What does Dr. Saver recommend as the three parts of a family
budget?
• What are fixed and variable expenses? Use examples.
• What does “pay yourself first” mean?
• What is net worth?
Exercise 8.2 A
• Read the background information about John and Marcia
• Questions:
1. Who are John and Marcia?
2. What is their lifestyle?
3. What is their immediate financial goal?
Exercise 8.2 A: Budget
• Fixed Expenses: Expenses
that continue at relatively
stable levels, month after
month or year after year
• Variable Expenses: A cost to a
person or business that varies
over time according to a
number of factors.
• What are some examples of
John and Marcia’s fixed
expenses?
• What are some examples of
John and Marcia’s variable
expenses?
• Housing, life and disability
insurance, renters insurance,
auto insurance, student loan,
etc…
• Meals, utilities, fuel, medical
care, child care, clothing, etc…
Exercise 8.2 A: Budget
• John and Marcia have decided to practice the "pay yourself first"
approach to saving for a second car. How do they pay themselves
first?
• Examine John and Marcia’s monthly spending plan. What
sacrifices do you think John and Marcia should make in their
variable expenses to meet their goal? Note: at-home food expenses
can’t be reduced below $220.
• Complete the “After Column” with ways that you believe they can
adjust their budget.
• What are the benefits and costs of your recommended decisions
for John and Marcia?
Assessment Activity
• John and Marcia want to buy a house!
• Down Payment: $10,000
• Home Price: $150,000
• Step 1:
• Calculate mortgage payment for a 30 year, fixed rate mortgage at 6%
interest.
• Payment = $840 PI (Principal and interest)
• Step 2:
• Calculate costs that include mortgage payment plus insurance and real
estate taxes of $210/ month
• $840+$210= $1050 PITI ( Principal, interest, taxes, and insurance)
John and Marcia Buy a House cont…
• John and Marcia’s Fixed Expenses:
• John and Marcia’s Variable Expenses
• Notes: Add the additional $65 utilities cost
to the total variable.
John and Marcia Buy a House cont…
1. Do John and Marcia have enough flexibility in their budget to
accommodate the additional costs of homeownership (mortgage
payment, taxes, insurance, and higher utilities)?
• Not right now. Their expenses will be $5500, representing fixed
expenses of $3240 and variable expenses of $2260 (with the added $65
in utilities).
2. If not, what are some expenses they may need to reduce in order to
afford the home they want?
•
Enter suggestions for variable expenses in the Homeowner column in budget form
from exercise 8.2B)
John and Marcia Buy a House cont…
3. Calculate if John and Marcia qualify….
•
$5400 x .28= $1,512; the PITI is expected to be $1,050
•
$5400 x .36 = $1,944; Monthly PITI plus other consumer debt such
(car, loan, and credit card payment) is $1480.
4. Do you think John and Marcia can afford to pay 28 percent of
their monthly gross income as a monthly house payment? Why
or why not?